Carbon abatement cost much too high for community acceptance – Origin

I can’t remember a year in which Australians have talked more about energy. The focus has been on how to reduce the carbon intensity of the energy we produce, while at the same time reducing the pressure that increasing energy costs are having on the community. These are two very important topics, and trying to address one can worsen the other.

The third, less talked-about objective for the energy sector is reliability. How long would you go without a hot shower? People might wait a day to get the hot water system fixed but most won’t go much longer before they will pay whatever it takes to get a new system in place.

We underestimate the value of reliability, which often comes at a greater cost than we seem willing to pay. While energy prices and carbon emissions may dominate the media debate, reliability should be the energy sector’s top objective.

Both sides of politics have agreed to reduce carbon emissions by 5 per cent by 2020. Most would not argue with the need to reduce our carbon footprint and achieve better environmental outcomes. Origin has led the way in the supply of cleaner electricity and we support the two policy instruments, the renewable energy target (RET) and carbon pricing mechanism, which aim to reduce carbon emissions.

However, there is a very real issue about how renewables, primarily wind and solar, will meet the supply targets required. Both fuels produce intermittent energy that will spike in certain conditions and seasons and decline in others.

Electricity cannot be stored like water – it is a use it or lose it commodity because of intermittency. Renewable energy requires investment in transmission and distribution networks, as well as generation capacity, to underpin the reliable supply of energy.

To continue to serve our customers a reliable supply of energy, we need to invest more in managing increasing levels of volatility or intermittency.

If we turn to the carbon price, it is well known that, at $23 a tonne, it has not changed the merit order of the fuels used to generate electricity.

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It is not causing electricity generation to move away from high carbon-intensive fuels such as coal to low carbon fuels. In fact, in the first six months of its operation the carbon pricing scheme has caused little change in the generating mix that creates our electricity.

The few changes to occur have been largely unrelated to the carbon price and driven by power station outages, reduction in demand for energy and higher prices and generation of renewable energy certificates. Coal still dominates.

The target of reducing carbon emissions in the first six-month period by 15 million tonnes has unfortunately come at a total scheme cost of about $10 billion, equating to a “real" carbon abatement cost of $700 a tonne. Given that the target was not reached, what little abatement has been achieved has come at an even higher cost.

Importantly, this high cost of carbon abatement is offset by payments through the tax system or issuance of free permits. Anyone not benefiting from these offsets must bear the burden of the full cost of abatement.

In NSW medium-sized businesses claim they cannot pass on up to 30 per cent in additional electricity costs that stem from green energy policies, including the RET and carbon scheme. They have to be carried and reduce the ability of businesses to expand, develop the economy and provide employment opportunities.

We continue to support the RET and the carbon price but it is Origin’s view the cost of carbon abatement being driven by these schemes is much higher than the general community understands or expects. It begs the question whether our policies are serving the three overarching objectives to have a reliable supply of energy with lower carbon emissions at a competitive price.